Transforming the Electric Infrastructure

The US electricity system, which precisely balances supply and demand while delivering electromagnetic energy that propagates at nearly light speed, has often been described as the most complex machine ever built. Indeed, in 2003 the US National Academy of Engineering named the electricity system as the greatest engineering achievement of the 20th century. The academy noted that the system is ingeniously engineered; it is a catalyst for new technologies and new industries; and it has an enormous impact on improving quality of life. It is arguably the most influential machine of the 20th century.

For much of that century, the electricity sector enjoyed steadily declining costs. But by 1970, diminishing economy−of−scale returns, combined with decelerating demand growth, higher fuel costs, and more rigorous environmental requirements, began to challenge the traditional declining−cost business model and to affect the economic and regulatory structure of the electric utility industry. The past 30 years have produced many well−intended efforts—culminating in a patchwork of competitive restructuring—all of which were focused on restoring the sector's tradition of declining cost. But those efforts have failed to meet the challenge. And given today's aging electricity infrastructure, no silver bullets are likely to succeed in the near future.

The period of well−intended efforts has also seen electricity become increasingly politicized as a retail entitlement. As a result, volatile market prices have essentially been allowed to move in only one direction—downward—often at the expense of sustaining the infrastructure for the long term. The combination of rising cost and artificially constrained price has created for electricity a monetary vise that is steadily tightening. The squeeze has led to a growing concern among industry insiders that the electricity sector's aging infrastructure, workforce, and institutions are losing touch with the needs and opportunities of the 21st century.

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